Question

On December 1, 2015 John Trap created a new travel agency, Trap Adventures, Inc. providing exclusive adventure trips. The following transactions occurred during December 2015. (NOTE: There are no beginning balances – this is a new company.) Dec 1 John Trap invested $60,000 cash in the company for common stock. 2 Purchase office equipment for $17,500 cash. 2 The company rented furnished office space by paying $18,000 cash for the first six months (December 2015 - May 2016) rent. 3 The company purchased $1,500 of office supplies on account. 10 The company paid $3,600 cash for the premium on a 12-month insurance policy. 14 The company paid $10,750 cash for two weeks' salaries earned by employees. 24 The company collected $54,000 cash on commissions from airlines on tickets obtained for customers. 28 The company paid $12,125 cash for two weeks' salaries earned by employees. 29 The company paid $350 cash for minor repairs to the company's computer. 30 The company paid $450 cash for this month's telephone bill. 30 Dividends of $3,000 cash were paid. Final Project Requirements Using the spreadsheet found here and information above, complete the following: Adjustment Data: One month's insurance coverage has expired. The company occupied the office space for the month of December. At the end of the month, $600 of office supplies are still available. Create journal entries to record the transactions that occurred during the month of December. (Completed in Unit 3) Prepare an unadjusted trial balance (Completed in Unit 3) Create adjusting journal entries at the end of the year, December 31 based on the adjustment data. Prepare an adjusted trial balance. Prepare an income statement, statement of stockholders' equity, and classified balance sheet. Create closing journal entries to close all temporary accounts. Prepare post-closing trial balance. In addition, answer TWO of the questions below in 1-2 fully developed paragraphs. A fully developed paragraph should have a major point with 3 to 5 support sentences. One or two sentences is not acceptable or does not discuss the question. Be sure to show what you know!!! Trap Adventures, Inc. is looking for an accountant. In your own words, explain to Trap's hiring team the role of accountant and accounting within business. Provide examples of the expectations of the accountant. Discuss the financial position of Trap Adventures, Inc. using the following ratios: Current ratio Return on equity: For each ratio, provide the calculation and an explanation of the meaning. Is this a positive or negative result for the Trap Adventures, Inc.? Using Trap Adventures, Inc.'s income statement, evaluate the operations for the month of December. Complete a common-size income statement using sales as the base number. What is the largest percentage? What is the smallest percentage? What recommendations could be made to increase Trap's net income? Currently, Trap Adventures, Inc. does not own any loans or bank notes (long-term liabilities). What would happen if Trap decides to obtain a bank loan for $25,000 to fund daily operations? How would this transaction impact the financial statements - which accounts would be affected? What is the debt to equity ratio? What does the debt to equity ratio represent

Answer 1

Answer:-

Date	Account Titles and explan	Debit	Credit
Dec-1	Cash To common stock	60000	6000
2	Office equipment To cash	17500	17500
3	prepaid rent To cash	18000	18000
4	office supplies To accounts payable	1500	1500
5	Prepaid insurance To cash	3600	3600
6	Salaries expense To cash	10750	10750
7	Cash To commissions revenue	54000	54000
8	salaries expense To cash	12125	12125
9	Repairs expense To cash	350	350
10	Telphones expense To cash	450	450
11	Dividends To cash	3000	3000

Create journal entries to record the transactions that occurred during the month of December. (Completed in Unit 3) Prepare an un adjusted trial balance (Completed in Unit 3) Create adjusting journal entries at the end of the year, December 31 based on the adjustment data. Prepare an adjusted trial balance. Prepare an income statement, statement of stockholders' equity, and classified balance sheet. Create closing journal entries to close all temporary accounts. Prepare post-closing trial balance

	Un adjusted Trial Balance		Adjustments		Adjusted Trial Balance		Post Closing Trial
Account	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$           48,225				$ 48,225		$ 48,225
Office Supplies	$             1,500			$          900	$       600		$       600
Prepaid Insurance	$             3,600			$          300	$    3,300		$    3,300
Prepaid Rent	$           18,000			$       3,000	$ 15,000		$ 15,000
Office Equipment	$           17,500				$ 17,500		$ 17,500
Accounts Payable		$    1,500				$    1,500		$    1,500
Common Stock		$ 60,000				$ 60,000		$ 60,000
Retained Earning								$ 23,125
Dividend	$             3,000				$    3,000
Commission Revenue		$ 54,000				$ 54,000
Repair Expense	$                 350				$       350
Salaries and Wages Expenses	$           22,875				$ 22,875
Telephone Expense	$                 450				$       450
Insurance Expense			$           300		$       300
Rent Expense			$        3,000		$    3,000
Office Supplies Expense			$           900		$       900
Total	$         115,500	$115,500	$        4,200	$       4,200	$115,500	$115,500	$ 84,625	$ 84,625

The running of business requires finance and proper use

of finance will require proper recording and control of the

same. The Accountant does the work of the recording and

finalising the accounts at the period end and presenting the

accounts and finance position to the shareholders. The

Accountant also keeps control on the statutory requirements

of the legal matters, like taxes and court cases.

The expectations of the Accountant is that concern takes care

of his/her salary. The daily expenses of the accounts department

are well be cared by concern. Statutory requirements would

be fulfilled by the management whenever arise.

Current ratio :The ratio shows the liquid assets carried by

concern to pay-off its liabilities. The Agency's CR is 68025/1500 =

45.35. The ratio is very good showing huge liquidity with the

concern to meet its liabilities. (formula = CA/CL)

Return on equity: The ratio shows the concerns return to the

shareholders. The ROE of Agency is 27025/60000=45%. The return

is supposed to be one of the best in the travelling business. The

shareholders are getting 45% on investment. (Formula:NI/Eq.)

Largest percentage is of Salary expense.

Smallest percentage is of Insurance expense.

The Trap's net income can be raised through going for more

ticket bookings and getting more business. For this purpose they

could employ intermediaries. The control on the concern's expenses

would also help the agency to enhance its net income.

The loan transaction of $25000 will increase the cash

and debt of liability side. The concern's current ratio is

good so bank would not find it difficult to lend because

concern's Net income margin is also good.

The Debt to Equity ratio shows the use of leverage by

concern to enhance the shareholder's wealth. The agency's

D/E ratio then will be Debt/Equity = 25000/(60000+24025)=0.3.

The ratio is with in the controlling limit as against 0.3 loan the

concern is having 1 equity.

I put all my efforts to answer the question. If any doubts comment below TQ